US equity futures signaled a pause in a three-day selloff on Wall Street at the end of a bruising week for investors forced to accept the idea of higher-for-longer interest rates.
(Bloomberg) — US equity futures signaled a pause in a three-day selloff on Wall Street at the end of a bruising week for investors forced to accept the idea of higher-for-longer interest rates.
Contracts for the S&P 500 added 0.3%, a modest rebound after the index fell the most since March on Thursday. Those on the tech-heavy Nasdaq 100 climbed 0.5%. Activision Blizzard Inc. gained 1.8% in premarket trading as Microsoft Corp.’s $69 billion acquisition of the gaming company looked set to clear its final regulatory hurdle. European stocks pared their losses.
Global central banks this week stressed that they remain vigilant about the risks of inflation and warned investors against premature expectations of rate cuts. The increasing possibility that monetary policy will lead to recession is prompting investors to dump stocks at the fastest pace since December, strategists at Bank of America Corp. said.
Equity funds had outflows of $16.9 billion in the week through Sept. 20, according to a note from the bank citing EPFR Global data. The team led by Michael Hartnett said persistently high rates could lead to a hard economic landing in 2024, and result in “pops and busts” in financial markets.
“What matters more than Fed hikes themselves is whether a recession occurs or not,” said Wolf von Rotberg, an equity strategist at Bank J Safra Sarasin Ltd. “It would be a remarkable accomplishment if it were avoided, yet that seems unlikely. If a recession were to happen, the equity market is not prepared for it.”
In individual moves in Europe, Adevinta ASA soared after the classifieds company said it received a takeover proposal from private equity investors including Blackstone Inc. and Permira. Meanwhile there were fresh signs of frailty in the euro-area economy Friday as figures showed private-sector activity in France and Germany continued to shrink in September. The euro fell before trimming its losses.
The latest evidence of resilience in the US labor market reinforced the case for the Fed’s stance of holding interest rates higher for longer. Applications for US unemployment benefits fell to the lowest level since January last week, figures out Thursday showed.
The Bloomberg dollar index was steady. Treasury yields retreated after the rate on the 10-year note reached 4.5%, the highest level since 2007, in the wake of the strong labor data.
“The prospect of interest rates staying higher for longer has given investors a lingering headache and sentiment has worsened as the week progressed,” said Russ Mould, investment director at AJ Bell. “Many investors had hoped we would approach the end of 2023 with a clearer picture on when interest rates will start to be cut. That scenario has now been muddied by comments from the Fed that it is prepared to raise rates further if necessary and keep a restrictive policy until there are clear signs that inflation is moving back to target levels.”
The yen weakened after the Bank of Japan held interest rates, its 10-year yield target and forward guidance unchanged. The central bank reiterated its expectation that inflation is decelerating.
In Asian stock trading, a region-wide equity index retraced early declines. Chinese shares rallied, a move that likely reflects “short covering on expectations of more policy support measures over the weekend, just like the government’s moves in every weekend this month,” said Steven Leung, an executive director at Uob Kay Hian Hong Kong Limited.
Oil rose, in part supported by news that Russia would ban exports of diesel-type fuel and gasoline. European natural gas prices fell as Chevron Corp. and labor unions in Australia agreed to end strikes at major export plants that roiled the market for more than a month.
Key events this week:
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 6:53 a.m. New York time
- Nasdaq 100 futures rose 0.5%
- Futures on the Dow Jones Industrial Average rose 0.1%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0636
- The British pound fell 0.4% to $1.2246
- The Japanese yen fell 0.4% to 148.25 per dollar
Cryptocurrencies
- Bitcoin was little changed at $26,595.76
- Ether rose 0.3% to $1,593.43
Bonds
- The yield on 10-year Treasuries declined two basis points to 4.48%
- Germany’s 10-year yield was little changed at 2.74%
- Britain’s 10-year yield declined two basis points to 4.28%
Commodities
- West Texas Intermediate crude rose 1% to $90.51 a barrel
- Gold futures rose 0.3% to $1,945.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson and Sagarika Jaisinghani.
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